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NELLCONELLCO Legal Scholarship RepositoryNew York University Public Law and Legal TheoryWorking Papers New York University School of Law
3-13-2007
Countering the Unfair Play of DRM TechnologiesNicola LucchiNYU School of Law - Hauser Global Law Program, [email protected]
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Recommended CitationLucchi, Nicola, "Countering the Unfair Play of DRM Technologies" (2007). New York University Public Law and Legal Theory WorkingPapers. Paper 50.http://lsr.nellco.org/nyu_plltwp/50
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COUNTERING THE UNFAIR PLAY OF DRM TECHNOLOGIES
Nicola Lucchi*
Introduction............................................................................................................................................ 2 1. DRM Technologies: definition and functioning ............................................................................... 5 2. Side Effects Induced by DRM Technologies: Some Practical Cases ............................................... 8
2.1 iTunes ......................................................................................................................................... 8 2.2 Sony-BMG rootkit ................................................................................................................... 13 2.3 EMI Music France ................................................................................................................... 17
3. DRM Technologies, Contract and Consumer Protection................................................................ 18 4. Do Consumers have rights when purchasing digital content? ........................................................ 24 5. Reconciling Intellectual Property Rights with Consumer Protection ............................................. 30
5.1 Consumer Privileges under Copyright Law ............................................................................ 35 5.2 Must Consumers Accept any Digital Terms and Conditions? ................................................ 40
6. When DRMs and Contract Terms Jeopardize Consumer Rights: U.S. and EU Approaches......... 44 6.1 U.S. Approach Towards Digital Terms and Conditions.......................................................... 46 6.2 European Approach Towards Digital Terms and Conditions ................................................. 57
7. Interoperability & Standards as an Indirect Form of Consumer Protection ................................... 67 8. Final Remarks.................................................................................................................................. 71
* Global & Engelberg Research Fellow, Hauser Global Law School Program,
New York University School of Law (2006-2007 a.y.). Research Associate at
the Department of Legal Studies of the University of Ferrara, Italy. I am very
grateful to Mario Savino, Juan Antonio Ruiz Garcia and Pierpaolo Settembri
for reading the earlier version of the manuscript presented in January 2007 in
the Global Fellows Forum organized by the Hauser Global Law School
Program. For their comments and critics on drafts I am also grateful to
Rochelle Dreyfuss, Eleanor Fox and Helen Nissenbaum as well as to all the
participants of the NYU School of Law Global Fellows Forum. Special thanks
belong to Professor Joseph Weiler and to his staff for graciously hosting my
research. The author is deeply indebted to the Cassa di Risparmio di Ferrara
Foundation, whose generous funding assured a smooth completion of the
research.
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Abstract: In the rapidly expanding information society, intellectual property law plays an increasingly important role in the production, distribution and use of creative material. As a consequence, it faces new possibilities and challenges. One of the most troublesome is connected with the development of the Digital Rights Management Systems and Technological Protection Measures applied to control the distribution and use of electronic works. In this framework, the anti-circumvention provisions enacted at the American, European and international level to safeguard digital content from uncontrolled distribution and unlawful use could have perverse effects and serious implications for the consumer community. When these provisions are applied and embedded to media products, they can erode some fundamental rights of consumers and can restrict traditional usages. This paper analyzes whether and to what extent the consumer rights are negatively affected by “digital terms and conditions” enforced with technology and contract law. To balance this inequity the research speculates on the application of consumer protection law as a possible contributory instrument to reduce imbalance between parties.
Introduction
This paper focuses on the side effects for consumers and the
possible solutions connected with the diffusion of Digital Rights
Management Systems (DRMs) used to secure digital content and
also to manage individual users’ behavior.
These kind of technological fences underlie a very large number of
attractive and innovative services for consumers such as online
music and video stores, pay-per-view and video on demand services.
DRMs can be applied for many purposes and in different ways, some
of which could be beneficial or detrimental for consumers depending
on specific circumstances. DRM systems have offered new
distribution and pricing models that take advantage of new
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technologies.
Unfortunately, some digital content formats have embedded
capabilities to limit the ways in which digital content can be used
reducing the consumer’s choice and generating interoperability
problems. Use may be restricted, for example, for a time period, to a
particular computer or other hardware device, or may require a
password or an active network connection. Furthermore DRM can
also individually control users’ behavior presenting a powerful threat
to freedom of expression as well as privacy. Such situations can
conflict with legitimate consumer rights and privileges.
Because consumers have the right to benefit from technological
innovations without abusive restrictions, I suggest considering
consumer protection law as an effective and immediately usable
solution to reduce some of the imbalances between parties.
To solve this unfairness, we could assume different approaches.
The question could be addressed (not necessarily solved) by using
three different contexts: copyright law, competition law and
consumer protection law.
In this article I only use the consumer protection law perspective.
The following pages consider whether and to what extent the
consumer rights are negatively affected by “digital terms and
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conditions” enforced with technology and contract law. To balance
this inequity the research speculates on the application of consumer
protection law as a possible contributory instrument to achieve more
fairness in mass-market digital product transaction.
The first part of the article, after a brief definition of the term
“DRM”, offers three concrete example of the potentially side effects
of the use of Digital Rights Management technologies in consumer
products.
The second part discusses how control of information, essentially
based on contract, technology and copyright law, has been reshaped
by digital revolution putting aside the law and promoting contract
and technology. In this troublesome situation the article offers a
route to reconcile conflicting privileges.
The third part looks at the European and the U.S. consumer
protection provisions, confronting the U.S. state law doctrine of
unconscionability, European consumer protection law and other
traditional limitations on contractual rights.
The article concludes proposing some possible scenarios and the
features suggested by these scenarios. In particular it invites to
reconsider the setting of copyright law and to stipulate new rules for
the implementation of specific provisions regarding digital consumer
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protection. In the meantime, general consumer protection law could
contribute to filling the gap, even if it can not be considered a
complete cure.
1. DRM Technologies: definition and functioning Digital Rights Management (DRM) is a broad term that refers to
any technologies and tools which have been specifically developed
for managing digital rights or information.1 DRM technologies have
the potential to control access to and use of digital content.2 This
1 The body of literature on this topic is extensive. See, e.g. DIGITAL RIGHTS
MANAGEMENT: TECHNOLOGICAL, ECONOMIC, LEGAL AND POLITICAL ASPECTS
597 (Eberhard Becker et al. eds., 2003) (offering a collection of works
discussing DRM systems and related laws); WILLIAM ROSENBLATT ET AL.,
DIGITAL RIGHTS MANAGEMENT: BUSINESS AND TECHNOLOGY (2002); C.J. Alice
Chen & Aaron Burstein, Foreword to Symposium, The Law & Technology of
Digital Rights Management, 18 BERKELEY TECH. L.J. 487 (2003) (providing an
overview of digital rights management).
2 See Stefan Bechtold, From Copyright to Information Law: Implications of
Digital Rights Management, in SECURITY AND PRIVACY IN DIGITAL RIGHTS
MANAGEMENT 213, 214-15 (Tomas Sander ed., 2002), available at
http://www.jura.uni-tuebingen.de/bechtold/pub/2002/DRM_Information_Law.
pdf.
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objective is usually realized by implementing a technological
protection measure. Then, a technological measure is any technology
that is designed to prevent or restrict acts which are not authorized by
the right-holder.3
The synergic effect obtained through the combination of technical
and legal means of protection allows DRMs to create a business
model for the secure distribution of digital content to authorized
users.4
In practice, DRM systems are software-based tools tailored to set
the use of digital files in order to protect the interests of right-
holders. DRM technologies can manage file access (number of
views, length of views, ways of viewing), altering, sharing, copying,
printing, and saving.5 These technologies may be included within the
operating system, program software, or in the actual hardware of a
device.
3 See 17 U.S.C. §1201(a)(3)(B).
4 See Stefan Bechtold, Governance in Namespaces, 36 LOY. L.A. L. REV. 1239,
1252 (2003).
5 See Elect. Privacy Info. Ctr., Digital Rights Management and Privacy, at
http://www.epic.org/privacy/drm/ (last visited Mar. 1, 2007).
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To secure content, DRM systems can take two approaches: “The
first is ‘containment’ or the wrapper, an approach where the content
is encrypted in a shell so that it can only be accessed by authorized
users. The second is ‘marking’ or using an encrypted header, such as
the practice of placing a watermark, flag, XML or XrML tag on
content as a signal to a device that the media is copy protected.”6
DRM systems can be characterized by the different technological
protection measure used. Encryption is one of the basic features. It
keeps content secure by scrambling (or “encrypting”) it and
preventing from being read until it is unscrambled with the
appropriate decryption key.7 Digital watermarking is another
technique used to authenticate, validate, and communicate
information. It enables identification of the source, author, creator,
owner, distributor, or authorized consumer of digital content.
Another type of protection measure is constituted by “trusted
systems.” These systems strengthen content protection, involving
both software and hardware in the control process by building
6 Id.
7 See COMM. ON INTELL. PROP. RIGHTS AND THE EMERGING INFO.
INFRASTRUCTURE, NATIONAL RESEARCH COUNCIL, THE DIGITAL DILEMMA:
INTELLECTUAL PROPERTY IN THE INFORMATION AGE 156-58, 283-95 (2000).
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security features like cryptographic signatures in personal
computers.8
2. Side Effects Induced by DRM Technologies: Some Practical Cases
Three concrete examples of the effects of the use of DRM
technologies in consumer products help to better understand the
underlying problems and potential strategies to restore the traditional
balance. I outline some courts decisions connected with cases where
consumers never received the correct information concerning the
limitation imposed thought the use of DRMs.
2.1 iTunes The first is the case of iTunes Music Store, a famous virtual record
shop where customers can buy and download either complete albums
or individual tracks from many major artists of different genres.9
This service enforces its standard contract terms by means of a
DRM system called “FairPlay” and, according to the terms of
8 See Jonathan Weinberg, Hardware-Based ID, Rights Management, and Trusted
Systems, 52 STAN. L. REV. 1251, 1254-55 (2000).
9 See Apple’s iTunes Music Store, http://www.apple.com/itunes/store/ (last
visited Jan. 11, 2007). Online services are present also outside the United States
and Europe with over 40 services.
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service, the provider reserves the right, at its sole discretion, to
modify, replace or revise the terms of use of the downloaded files:10
Apple reserves the right, at any time and from time to
time, to update, revise, supplement, and otherwise modify this Agreement and to impose new or additional rules, policies, terms, or conditions on your use of the Service. Such updates, revisions, supplements, modifications, and additional rules, policies, terms, and conditions (collectively referred to in this Agreement as "Additional Terms") will be effective immediately and incorporated into this Agreement. Your continued use of the iTunes Music Store following will be deemed to constitute your acceptance of any and all such Additional Terms. All Additional Terms are hereby incorporated into this Agreement by this reference.11
This kind of unilaterally imposed changes in conditions of use on
legitimate downloaded files can be enforced just by changing the
DRM settings. In the EC market, this behavior is prohibited by law
and considered unfair, in particular when applied in a standard form
contract not subject to negotiation. According to the Directive
10 See Lars Grøndal, DRM and contract terms, INIDICARE, Feb. 23, 2006, at
http://www.indicare.org/tiki-read_article.php?articleId=177 (analyzing the
relationship between contract terms and DRM in on-line music stores and
specifically in iTunes music store term of service.).
11 See iTunes Music Store Terms of Service, Article 20 at http://www.apple.com/
ca/support/itunes/legal/terms.html.
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10
93/13/EEC on unfair terms in consumer contracts,12 the case could be
included in the indicative and non-exhaustive list of the terms which
may be regarded as unfair, reproduced in the Annex to the
Directive.13 Explicitly, the Directive talks about terms which have the
object or effect of “enabling the seller or supplier to alter the terms of
the contract unilaterally without a valid reason which is specified in
the contract”14 or of “enabling the seller or supplier to alter
unilaterally without a valid reason any characteristics of the product
or service to be provided”.15
Based also on this fact, on 25th January 2006 the Norwegian
Consumer Council presented a complain with the Consumer
Ombudsman (Mr. Bjørn Erik Thon) against iTunes Music Store
Norge for breach of fundamental consumer rights.16 Although
12 Council Directive 93/13/EEC, On Unfair Terms in Consumer Contracts, 1993
O.J. (L95/29).
13 Council Directive 93/13/EEC, art. 3(3), 1993 O.J. (L95/29).
14 Council Directive 93/13/EEC, annex letter j, 1993 O.J. (L95/29).
15 Council Directive 93/13/EEC, annex letter k, 1993 O.J. (L95/29).
16 See Jo Singstad, iTunes’ questionable terms and conditions, Jan. 25, 2006
available at http://forbrukerportalen.no/Artikler/2006/1138119849.71 (last
visited Jan. 8, 2007). The text of the complain is available at
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Norway is just an EEA (European Economic Area) member its
copyright and consumer protection law fully complies with the EC
Copyright and Consumer Acquis.
Mr. Thon has ruled that some of the Apple iTunes terms and
conditions are in contrast to section 9a of the Norwegian Marketing
Control Act.17 This act implements in the Norwegian systems the
Directive 93/13/CE on unfair terms in consumer contract. Section 9a
stipulates that:
Terms and conditions which are applied or are intended to be applied in the conduct of business with consumers can be prohibited if the terms and conditions are considered unfair on consumers and if general considerations call for such a prohibition. When determining whether the terms and conditions of a contract are unfair, emphasis shall be placed on the balance between the rights and obligations of the parties and on whether the contractual relationship is clearly defined or not.
http://forbrukerportalen.no/filearchive/Complaint%20against%20iTunes%20M
usic%20Store.
17 See Act No. 47 of 16 June 1972 relating to the Control of Marketing and
Contract Terms and Conditions, available at
http://www.forbrukerombudet.no/index.gan?id=706&subid=0
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According to this act, the Consumer Ombudsman, upon request from
an authority or consumer organizations, can intervene and prohibit
the use of unfair terms and conditions in consumer contracts.18
In this case, Mr. Thon has considered as unreasonable some of
iTunes terms and conditions. In particular, he has considered unfair,
among other provisions, Apple's reservation of the right to
unilaterally modify the terms of the usage agreement without notice
and its disclaimer of responsibility for computer viruses or other
damage that might result from downloading music from its service.
Both terms violate the basic fundamental principles of contract law.
Furthermore the Norwegian Consumer Ombudsman highlighted that
Apple’s DRM system is not "interoperable" with other formats and
devices “locking consumers into Apple’s proprietary systems.”
This decision, even if the case is still pending, is one of the several
small steps on a long path, but it could be considered a very
18 See Mikko Valimaki & Ville Oksanen, DRM Interoperability and Intellectual
Property Policy in Europe, 28 EUR. INTELL. PROP. REV., 562, 566 (2006).
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significant step.19 In fact, it is important to note that Norway's
complaint comes after similar recent case law in Europe.20
2.2 Sony-BMG rootkit This example confirms that consumer protection in digital media
could be found outside copyright law. The case is connected to the
use of a copy-protection technology called XCP (i.e. Extended
Copyright Protection) in the Sony-BMG CDs.21 When consumers
19 Id., at 566-567 (admitting that, even if consumer authorithies can protect only
consumer, the case could have a pan-European consequence since European
consumer protection law are wide harmonized).
20 Apple is facing legal action on several fronts. Sweden and Denmark Consumer
Authorities are considering to follow the Norway's judgment. On a different
front, iTunes seems to have some problems about the lack of interoperability.
See e.g. Conseil de la Concurrence, Décision N° 04-D-54 du 9 Novembre 2004
relative à des pratiques mises en œuvre par la société Apple Computer, Inc.
dans les secteurs du téléchargement de musique sur Internet et des baladeurs
numériques, available at http://www.conseil-concurrence.fr/pdf/avis/04d54.pdf.
21 For some detailed legal and technical comments of the rootkit case see Megan
M. LaBelle, The "Rootkit Debacle": The Latest Chapter in the Story of the
Recording Industry and the War on Music Piracy, 84 DENV. U.L. REV. 79
(2006); J. Alex Halderman & Edward W. Felten, Lessons from the Sony DRM
Episode (Ctr. for Info. Tech., Princeton Univ., Dep't of Computer Sci.,
Working Paper, 2006) available at http://itpolicy.princeton.edu/pub/sonydrm-
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tried to play the copy protected CDs on their computers, this DRM
system automatically installed software and then hides this software
to make it more difficult for consumers to remove it. The side effect
of this software was to interfere with the normal way in which the
Microsoft Windows operating system plays CDs, opening security
holes that allow viruses to break in. It was also able to collect
information from the user's computer. Even if Sony BMG disclosed
the existence of this software in the EULA, the agreement does not
disclose the real nature of the software being installed, the security
and privacy risks it can create, the practical impossibility of
uninstalling and many other potential problems for the user's
computer. On the contrary EULA misrepresents the real nature of the
software including ambiguous and restrictive conditions.
ext.pdf; Jeremy F. deBeer, How Restrictive Terms and Technologies Backfired
on Sony BMG Music (Part 1), 6 INTERNET & E-COM. L. IN CAN. 93 (2006);
Jeremy F. deBeer, How Restrictive Terms and Technologies Backfired on Sony
BMG Music (Part 2), 7 INTERNET & E-COM. L. IN CAN. 1 (2006).
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When users and consumer organizations were seized of the matter,
they filed more than twenty lawsuits against Sony BMG in Canada,
the United States and Europe.22
Following the discovery of the use of this surreptitious copy
protection technology, in November 2005, the Attorney General of
Texas filed a class action lawsuit against Sony-BMG23 under Texas’
Consumer Protection Against Computer Spyware Act of 2005
("Texas Spyware Act").24 In the United States, other private actions
22 See John Edward Sharp, There Oughta Be a Law: Crafting Effective Weapons
in the War Against Spyware, 43 HOUS. L. REV. 879, 885 (2006). In the case in
point, the EC directive on the liability of defective products could be also
applied. See Council Directive 85/374/EEC of 25 July 1985 on the
Approximation of the Laws, Regulations and Administrative Provisions of the
Member States Concerning Liability for Defective Products, 1985 O.J. (L 210)
29.
23 Texas v. Sony BMG Music Entm't, Dist. Ct., Travis Co, Texas available at
http://www.sonysuit.com/classactions/texas/complaint.pdf
24 Tex. Bus. & Com. Code, § 48.001 et seq. The statute sets up the crimes for the
following conducts: (1) unauthorized collection or culling of personally
identifiable information; (2) unauthorized access to or modifications of
computer settings; (3) unauthorized interference with installation or disabling
of computer software; (4) inducement of computer user to install unnecessary
UNFAIR PLAY 3/13/2007 8:26:18 PM
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were consolidated and settled.25 Many of these class-action lawsuits
were filed in California by Electronic Frontier Foundation asserting
the violation California's Consumer Protection Against Computer
Spyware Act.26
The point is particularly interesting for the article’s thesis because,
to my knowledge, these are some of the first cases based on
consumer law as an instrument of defense against DRM
technologies. Actually, the US approach to the problem has been
mainly examined, at least up to now, under the copyright spectrum.27
software; and (5) copying and execution of software to a computer with
deceptive intent. It also allows civil remedies.
25 Settlement Agreement P I.A-B, In re Sony BMG CD Techs. Litig., No. 1:05-
cv-09575-NRB (S.D.N.Y. 2005), available at
http://www.sonybmgcdtechsettlement.com/pdfs/SettlementAgreement.pdf
26 Cal. Bus. & Prof. Code § 22947-22947.6. For details on the complaint see
Electronic Frontier Foundation, Sony BMG Litigation Info,
http://www.eff.org/IP/DRM/Sony-BMG (last visited December 6, 2006).
27 See Natali Helberger, The Sony BMG Rootkit Scandal, INDICARE, Jan. 9, 2006,
at http://www.indicare.org/tiki-read_article.php?articleId=165 (citing Julie E.
Cohen, The Place of the User in Copyright Law, 74 FORDHAM L. REV. 347
(2005) and Joseph P. Liu, Copyright Law's Theory of the Consumer, 44 B.C. L.
REV. 397 (2003)).
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2.3 EMI Music France The last example is the French case CLCV v. EMI Music France.
The consumer association Consommation, Logement et Cadre de Vie
(CLCV) filed a lawsuit claiming that EMI Music France had not
provided sufficient and correct information to consumers concerning
technological protected CDs and their playability restrictions. In
particular the judge of the Court of First Instance considered that not
informing consumers about the fact that a content medium like a CD
cannot be played on some devices can represent a «tromperie sur les
qualités substantielles des CD», that is a deception on substantial
qualities of CD.28 For this reason it can constitute a misleading
behavior about the nature and substantial qualities of the product as
recognized by the article L213-1 of the French Comsumer law (Code
de la Consummation)29. The Court of appeal in Versailles confirmed
28 See Association CLCV v. EMI Music France, Tribunal de Grande Instance de
Nanterre 6eme Chambre jugement du 24 Juin 2003, available at
http://www.legalis.net/jurisprudence-decision.php3?id_article=34#
29 Article L213-1 Code de la Consummation (Loi n° 92-1336 du 16 décembre
1992 art. 322 Journal Officiel du 23 décembre 1992 en vigueur le 1er mars
1994): “Sera puni d'un emprisonnement de deux ans au plus et d'une amende de
250 000 F au plus ou de l'une de ces deux peines seulement quiconque, qu'il
soit ou non partie au contrat, aura trompé ou tenté de tromper le contractant,
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18
the decision of the Tribunal de Grande Instance de Nanterre,
rejecting the arguments of EMI Music France. It also ordered EMI
Music to pay 3000 Euro as damages and to appropriately label the
outside packaging of its products.30
3. DRM Technologies, Contract and Consumer Protection These three examples offer clear evidence that contemporary
transnational economy is often in contrast with national legal orders,
which are unable to rapidly conform to the changes of the society.
They also prove that Copyright Law is drifting away from its
leading role because is inadequate to deal effectively with the
challenges of the new global environment. On the contrary, contract
has been able to adapt to the changes in society produced by the par quelque moyen en procédé que ce soit, même par l'intermédiaire d'un tiers:
1° Soit sur la nature, l'espèce, l'origine, les qualités substantielles, la
composition ou la teneur en principes utiles de toutes marchandises; 2° Soit sur
la quantité des choses livrées ou sur leur identité par la livraison d'une
marchandise autre que la chose déterminée qui a fait l'objet du contrat; 3° Soit
sur l'aptitude à l'emploi, les risques inhérents à l'utilisation du produit, les
contrôles effectués, les modes d'emploi ou les précautions à prendre.”
30 S.A. EMI Music France v. Association CLCV, Cour d’Appel de Versailles 1ère
chambre, 1ère section, 30 Septembre 2004, available at
http://www.foruminternet.org/telechargement/documents/ca-vers20040930.pdf
UNFAIR PLAY 3/13/2007 8:26:18 PM
19
industrial revolution as well as in the present-day potential of the
digital world.31 This is the reason why contract has become the
principal instrument for legal innovation and legal standardization.32
In the information society framework, the combination of contract
with technological protection measures could represent a powerful
mixture for a fully automated system of secure distribution, rights
management, monitoring, and payment for protected content. So,
when users access content protected by a technological protection
measure, the content provider, in practice, imposes a contractual
provision by a click-through or click-wrap agreement. In particular,
in the online media marketplace, digital rights management systems
can operate in combination with contracts and can be essentially used
to enforce contractual conditions.
31 See George W. Goble, The Nature of Private Contract, 14 STAN. L. REV. 631,
634 (1962) (book review) (noting how contract has become the most seasoned
and effective law).
32 See FRANCESCO GALGANO, LA GLOBALIZZAZIONE NELLO SPECCHIO DEL
DIRITTO 93-94 (2005); On the relationship between Legal and Technical
Standardization see Margaret J. Radin, Online Standardization and the
Integration of Text and Machine, 70 FORDHAM L. REV. 1125, 1138 (2002).
UNFAIR PLAY 3/13/2007 8:26:18 PM
20
The flow and control of information is essentially based on the
following instruments: contract, technology and copyright law.33 The
digital revolution has reshaped the hierarchy by putting aside the law
and promoting contract and technology. Copyright law has just
become an instrument to strengthen the control based on contract and
technology.34
Actually, the anti-circumvention legislations, enacted in the United
States35 and Europe36, combined with the use of technological
protection measures and rights management systems have had the
effect to move the issue from copyright law to contract law. As a
consequence, if digital content is protected by rights management
33 See Stefan Bechtold, Digital Rights Management in the United States and
Europe, 52 AM. J. COMP. L. 323, 352 (2004); Roberto Caso, Modchip e Diritto
d’Autore. La Fragilità del Manicheismo Tecnologico nelle Aule della Giustizia
Penale, 7 CIBERSPAZIO E DIRITTO 183, 216 (2006).
34 See generally LAWRENCE LESSIG, CODE AND OTHER LAWS OF CYBERSPACE
(1999).
35 Digital Millennium Copyright Act, Pub. L. No. 105-304, 112 Stat. 2860 (Oct.
28, 1998). codified as amended in a new chapter 12 to Title 17 of the U.S.C. §§
1201-1205 (2000).
36 European Directive 2001/29/EC on the Harmonization of Certain Aspects of
Copyright and Related Rights in the Information Society, 2001 O.J. (L 167) 10.
UNFAIR PLAY 3/13/2007 8:26:18 PM
21
systems, and rights management systems are protected by
technological and legal measures, consumer’s capacity to exercise
legitimate rights or exceptions could be compromised. Content
owners can unilaterally determine and dictate terms and conditions
limiting consumers’ behaviors.
Furthermore, in the digital marketplace, consumers are
increasingly obliged to deal with unfair and obscure licensing
agreements, misuse of personal data, device and digital content
which are not designed to communicate together and, above all, with
lack or insufficient information about products and services.37
To balance this iniquity I want to concentrate on the aspects of
consumer protection, fair contractual conditions, information
disclosure and deceptive practices. DRM-controlled applications
have the potential to formulate rules38 and to enforce contractual
37 See Bureau Européen des Unions Des Consommateurs, BEUC Memorandum
for the EU German Presidency, BEUC/X/066/2006, Nov. 2006, available at
http://www.beuc.org/BEUCNoFrame/Common/GetFile.asp?ID=21523&mfd=o
ff [hereinafter BEUC Memorandum].
38 The so called “normative effect of technology”. On the power of technology,
see generally LESSIG, supra note 34; Joel R. Reidenberg, Lex informatica: The
UNFAIR PLAY 3/13/2007 8:26:18 PM
22
conditions39 locking content beyond its copyright period or
disrespecting existing exceptions, such as the “right” to make copies
for private use, parody, quotation, scientific or teaching purposes.40
Additionally, a DRM enforced contract is often realized on
unfairness in the process of contract formation and on unfairness in
the “invisible” contract terms connected with the use of
technological protection measures. Whereas “visible” terms are
immediately valuable by consumers, “invisible” terms and conditions
are, not only terms that cannot be readily comprehended, but, in this
case, they are also terms implemented without providing consumers
notice of the possible limitations of the copy-protected content. In
few words, the restrictions imposed by technological measures are
Formulation of Information Policy Rules Through Technology, 76 TEX. L. REV.
553 (1998).
39 See extensively LUCIE M.C.R. GUIBAULT, COPYRIGHT LIMITATIONS AND
CONTRACTS: AN ANALYSIS OF THE CONTRACTUAL OVERRIDABILITY OF
LIMITATIONS ON COPYRIGHT (2002).
40 See Andrea Ottolia & Dan Wielsch, Mapping the Information Environment:
Legal Aspects of Modularization and Digitization, 6 YALE J. L. & TECH. 174,
(2003) (arguing that a contract or a license might be provided and signed by the
user while acquiring the DRM).
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23
frequently unclear to consumers. This lack of information can induce
consumers to take buying decisions which they would not have taken
had they been better informed.
The perverse effect of this technology controlled contract is to
preclude the traditional copyright balance between right-holders’
interests on the one hand and the interest of users and society on the
other hand. This is a traditional balance that has been a part of
Anglo-American fair use doctrine as well as of the copyright
exemptions in European copyright law.
Therefore, to avoid a legal regime that reduces options and
competition in how consumers enjoy digital media, contractual
licensing of information or other standardized digital content
transactions must be subject to the same legal limitations as other
contracts. The aim is to guarantee consumers certain basic rights also
in the digital world informing what they can or cannot do with the
digital content acquired.
Copyright Law is drifting towards a contract law scheme where
DRM Technologies allow copyright owners to circumvent the
existing fair use exceptions in the Copyright Law. So, any “rights”
that consumers may have under copyright law could be replaced by a
commercial agreement between the parties. I consider that these
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24
stronger author rights need stronger balancing factors.
To reach this goal I think it is necessary to develop a new legal
framework to reestablish consumers' rights. In the meantime we can
immediately achieve some good results applying general consumer
protection law and in particular the legal remedies to protect the
weaker contractual party.
4. Do Consumers have rights when purchasing digital content? Digital Consumers have rights, which must be protected.
The development of digital media technology has offered new
opportunities of enjoyment for consumers41, but they also raise, as
above-mentioned, significant consumer protection concerns. Various
media system available on the market use DRM technologies without
any consideration about the effects such means will have on
customers.
41 See Michael A. Einhorn & Bill Rosenblatt, Cato Inst., Policy Analysis No. 534:
Peer-to-Peer Networking and Digital Rights Management: How Market Tools
Can Solve Copyright Problems 1,3 (2005),
http://www.cato.org/pubs/pas/pa534.pdf (observing that with DRM, content
owners may offer different rights by designing menus of diverse services and
charging a different price for each).
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25
Obviously, consumers have certain basic rights also in the digital
world. Legislation and other rules of conduct designed to protect
consumers from deceptive marketing practices, negligent
misrepresentations, unfair terms or unfair business practices apply
with their full force.42 Moreover, consumers must be able to judge the
quality and characteristics of some complex technological products
and services. There is no doubt that disclosure and transparency are
effective means of protecting their rights and interests, especially in
case of information asymmetry.43
42 See John Rothchild, Protecting the Digital Consumer: The Limits of
Cyberspace Utopianism, 74 IND. L.J. 893, 897 (1999); Raymond T. Nimmer,
Images and Contract Law - What Law Applies to Transactions in Information,
36 HOUS. L. REV. 1, 24 (1999). See also Bureau of Consumer Protection -
Federal Trade Commission, Consumer Protection in the Global Electronic
Marketplace: Looking Ahead, (September, 2000) at
http://www.ftc.gov/bcp/icpw/lookingahead/electronicmkpl.pdf; Interpretation
of Rules and Guides for Electronic Media; Request for Comment, 63 Fed. Reg.
24,996 (1998).
43 See Edward Rubin, The Internet, Consumer Protection and Practical
Knowledge, in CONSUMER PROTECTION IN THE AGE OF THE INFORMATION
ECONOMY 38 (Jane K. Winn ed., 2006); Howard Beales, Richard Craswell, &
Steven Salop, The Efficient Regulation of Consumer Information, 24 J. OF L. &
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26
For example, consumers must know what they can do with their
digital hardware and content as well as the limit of their usage.44
Rights and duties have always lain at the heart of consumer politics.45
These rights are different depending on the type of contract used.
Thus, a content transaction could be identified as a license or a sale,
but the controversial nature of the distinction between a license and a
sale, when applied to the technology world, could make this doctrinal
dispute more confusing.46 The main difference is that in the first case
ECON. 491, 513 (1981) (arguing “where inefficient outcomes are the result of
inadequate consumer information, information remedies will usually be the
preferable solution”); Howard Beales, Richard Craswell, & Steven Salop,
Information Remedies for Consumer Protection, 71 AM. ECON. REV. 410, 411-
413 (1981) (“Information remedies are most likely to be the most effective
solution to information problems. They deal with the cause of the problem
rather than with its symptoms, and leave the market maximum flexibility.”).
44 See e.g. Consumers Digital Rights Campaign,
http://www.consumersdigitalrights.org/ (last visited Feb. 16, 2007).
45 See Metthew Hilton, The Duties of Citizens, the rights of consumers, 15 CONS.
POL'Y REV., 6 (2005).
46 See Raymond T. Nimmer, Intangibles Contracts: Thoughts of Hubs, Spokes,
and Reinvigorating Article 2, 35 WM. & MARY L. REV. 1337, 1345-46 (1994)
(discussing distinctions between sales of tangible goods and licenses of
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27
the content transaction falls under contract law while in the second it
falls under copyright law.47 Vendors, usually, prefer license
agreements because they allow to avoid the first sale or the
exhaustion right, imposing terms and limitations on consumer’s use.48
It is clear that this conduct virtually results in determining the
landscape of consumer privileges. These privileges are recognized
and protected by law, but are often restricted by the use of DRM
technologies. The issue is directly related to cases in which the
contract scheme is shaped not as the consequence of negotiation
between parties, but rather as a form of imposition of unilaterally
defined contractual terms and conditions. In this case the licensor is
effectively using the contract, the license, to manage his rights never
considering the possibility that others do have rights.
intangible software under U.C.C. Article 2). See RAYMOND T. NIMMER, THE
LAW OF COMPUTER TECHNOLOGY: RIGHTS, LICENSES, LIABILITIES § 6:1 (3d ed.
1997).
47 See ROSENBLATT ET AL., supra note 1, at 48 (arguing that the tension between
copyright and contract law affects the balance that copyright law seeks to
strike).
48 Ryan J. Casamiquela, Business Law: A. Electronic Commerce: Contractual
Assent and Enforceability in Cyberspace, 17 BERKELEY TECH. L.J. 475 (2002).
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28
As discussed later in the paper, there is a controversy about the
value and the consequence of this common practice. We have just to
decide if consumers could be protected using the umbrella of
consumer protection law or rather reconsidering the setting of
copyright law. Then, in case of lack of information, it is necessary to
decide the preferred solution: provide the missing information or
regulate the market directly.
Under the first point of view, we must consider that pro-digital-
consumer legislation has enjoyed no great success in U.S.. The most
famous consumer-rights legislation proposed in the recent time, the
Digital Media Consumers' Rights Act ("DMCRA"), 49 has been
reintroduced into Congress three times without success.
On the contrary, in France, Norway, and Germany several pieces
of pro-consumer legislation have been recently proposed or
introduced. The fact that such legislation has been supported is
49 See Infra §601. See also Alison R. Watkins, Surgical Safe Harbors: The Family
Movie Act and the Future of Fair Use Legislation 21 BERKELEY TECH. L.J.
241, 263 (2006).
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29
significant in a number of respects. The recent Apple DRM-free
music proposal is somehow related to this new European approach.50
Thus, it could be reasonable to limit the ability of consumers to
copy digital data by requiring manufacturers to embed DRM
capabilities into digital content. By the same token, it is also
reasonable to disclose exactly the use of DRM Technologies and to
limit the erosion of fair-use rights. Copyright Law has exceptions
that may be used to safeguard consumers. But to face a shift from
copyright to contract law I believe that the traditional and basic
consumer’s rights, pillar of the modern consumer movement, could
be also adapted and considered for the digital environment. The right
to safety, the right to be informed, the right to choose and the right to
be heard, must represent the parameters of a new legal framework for
distribution of digital content.51
50 See the open letter from Apple CEO Steve Jobs, Thoughts on Music, available
at http://www.apple.com/hotnews/thoughtsonmusic (suggesting record
companies to abandon digital rights management technologies).
51 These fundamental consumer rights were enshrined in a Consumer’s Bill of
Rights in 1962 by US President J.F. Kennedy; and since then, the world
consumer movement has added more.
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30
5. Reconciling Intellectual Property Rights with Consumer Protection
Traditionally, it has been recognized that a consumer buyer might
require additional form of protection to those offered to a
commercial buyer.52 Consumer protection measures could play a
useful role in reconciling the interest of intellectual property rights-
holders and users. Unfortunately, the interaction between consumer
protection and DRM remain relatively unexplored because of early
stage of the investigation among scholars.53 However, the
52 See GERAINT HOWELLS & THOMAS WILHELMSSON, EC CONSUMER LAW 3
(1997).
53 A first interesting attempt has been made at the workshop entitled “Fair DRM
Use” held on 28 May 2005 in Amsterdam. See Mara Rossini & Natali
Helberger, Fair DRM Use. Report on the 3rd INDICARE Workshop,
Amsterdam (28 May 2005) available at http://www.indicare.org/tiki-
download_file.p hp?fileId=146. See also Lucie Guibault & Natali Helberger,
Consumer protection and Copyright Law, available at
http://www.ivir.nl/publications/other/copyrightlawconsumerprotection.pdf (last
visited Feb. 28, 2007); INFORMED DIALOGUE ABOUT CONSUMER
ACCEPTABILITY OF DRM SOLUTIONS IN EUROPE - INDICARE, CONSUMER'S
GUIDE TO DIGITAL RIGHTS MANAGEMENT, available at
http://www.indicare.org/tiki-download_file.php?fileId=195 [hereinafter
Consumer's Guide to DRM].
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31
predominant purpose of the directives and other rules issued in the
EC consumer law area relate exactly to the protection of the
economic interests of consumers.54
As argued above, technological protection measures have a series
of upsetting and unexpected uses. For example, most software
programs are subject to End User License Agreements (hereinafter
EULAs), and the common consumers’ attitude towards EULAs is to
agree without reading them.55 But a EULA is a classic example of a
contract of adhesion that does not come as the result of a negotiation
between the vendor and the user.56 A mass-market software company
writes the EULA to license copies of its goods, so it can restrict their
54 See HOWELLS & WILHELMSSON, supra note 52, at 85.
55 For a collection of unfair EULAs see Annalee Newitz, Dangerous Terms: A
User Guide to EULAs, at http://www.eff.org/wp/eula.php.
56 See Robert A. Hillman & Jeffrey J. Rachlinski, Standard-form Contracting in
the Electronic Age, 77 N.Y.U.L. REV. 429 (2002) (remarking on the easy
adaptation of traditional contract law to electronic transactions). On EULA, see
John J.A. Burke, Reinventing Contract, 10 MURDOCH U. ELEC. J.L. 2, ¶ 18
(2003), http://www.murdoch.edu.au/elaw/issues/v10n2/burke102_text.html;
Robert W. Gomul kiewicz & Mary L. Williamson, A Brief Defense of Mass
Market Software License Agreements, 22 RUTGERS COMPUTER & TECH. L.J.
335 (1996).
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32
customers’ rights of transfer and use. Essentially, the only possibility
for the end user is to take it or leave it. DRM can be used to enforce
EULA clauses or even policies that are not legally enforceable.
Generally, the use of technological protection measures could
increase the power of rights-holders to set excessive conditions on
the users. The combination of a contract and technological protection
measures could represent a powerful mixture for a fully automated
system of secure distribution, rights management, monitoring, and
payment for protected content.57 So, DRM, de facto, could also be
seen as the imposition of “unilateral[] contractual terms and
conditions.”58 As already pointed out, when users access content
protected by a technological protection measure, the content
57 See P. Bernt Hugenholtz, Copyright and Electronic Commerce: An
Introduction, in COPYRIGHT AND ELECTRONIC COMMERCE: LEGAL ASPECTS OF
ELECTRONIC COPYRIGHT MANAGEMENT 1, 2 (P. Bernt Hugenholtz ed., 2000).
58 See Jacques de Werra, Moving Beyond the Conflict Between Freedom of
Contract and Copyright Policies: In Search of a New Global Policy for On-
Line Information Licensing Transactions: A Comparative Analysis Between
U.S. Law and European Law, 25 COLUM. J.L. & ARTS 239, 244 (2003). Other
commentators have criticized this approach. See e.g. Margaret Jane Radin,
Regulation by Contract, Regulation by Machine, 160 J. INST. THEORETHICAL
ECON. 1, 12 (2004) (stating that DRM is a replacement for contract).
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33
provider, in practice, imposes a contractual provision by a click-
through or click-wrap agreement.59
In this sense, “technological protection measures can be
considered a condition of the widespread use of contract-based
distribution models on the Internet.”60 Therefore, the unfairness that
these measures introduce in the different positions should be
59 Under this legal fiction, the consumer can agree to the terms of contract in a
very similar way to the shrink-wrap license. On the latter form of licensing
agreement, see Mark A. Lemley, Intellectual Property and Shrinkwrap
Licenses, 68 S. CAL. L. REV. 1239 (1995). Some commentators argue that, even
if “DRM usage contracts are usually made over the Internet and are therefore
not shrink-wrap licenses in the strict sense... [they could be] analogized...to
their online counterpart: the so-called ‘click-wrap’ licenses.” Bechtold, supra
note 33, at 343 (remarking also that “[m]ost DRM usage contracts are such
click-wrap licenses”). On the electronic contracting environment, see Hillman
& Rachlinski, supra note 56, at 464 (2002).
60 De Werra, supra note 58, at 250. On the standardization of on-line contracts,
see CRISTINA COTEANU, CYBER CONSUMER LAW AND UNFAIR TRADING
PRACTICE 45 (2005).
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34
considered by policymakers if they want to support this kind of
business model.61
Some commentators have reasonably argued that, unless the
legislature clarifies the issue, “the copyright regime would succumb
to mass-market licenses and technological measures.”62 It will be
necessary, for example, to reconsider the norms protecting
consumers and weak contracting parties, particularly dealing with a
contract able to impose unlimited restrictions on the contents. As
already done in other similar situations, it is necessary to rebalance
the function of copyright law, or rather, to identify the limits of
contracts as means of exploiting intellectual property rights.
61 For a European perspective on whether copyright limitations and exceptions
can be contracted or overridden through contract law or technological
protection devices, see Lucie M.C.R. Guibault, Contracts and Copyright
Exemptions, in COPYRIGHT AND ELECTRONIC COMMERCE, supra note 57, at
125, 149-52.
62 Id. at 160.
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35
5.1 Consumer Privileges under Copyright Law Normally consumers have some privileges granted under copyright
law regime.63 Copyright law allows certain exceptions whereby users
can use copyright works freely without rights holder authorization.64
Both common law and civil law countries have more or less
several exceptions in common such as exceptions for educational and
scientific purposes, exception for citation, parody and private
copying exception. Generally these exceptions consent to consumers
to make copies or utilize copyrighted material in some
circumstances.
Problems come out when a technological protection measure is in
place because it eliminates these fair use rights or copyright
exceptions. Given that the circumvention of these measures is strictly
prohibited, the beneficiary of a copyright exception on a
technologically protected content would have no possibility to
benefit from these exceptions without exposing to sanctions.
63 See De Werra, supra note 58, at 244.
64 See e.g. 17 U.S.C. 107 (2000) and, at an international level, the Article 9(2) of
the Berne Convention also called “Three-Step Test”, Article 10 and 10bis. See
also Consumer’s Guide to DRM, supra note 53, at 11.
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36
Thus, the question is whether right-holders are allowed to render
ineffective the copyright exemptions by implementing technological
measures.
European law does not resolve these problems: the safeguard
provided by article 6(4) of the EC Copyright Directive, which deals
with the relationship between technological protection measures and
copyright exceptions65, is vague and difficult for an individual to
claim. Furthermore the article stipulates that regulations must come
from right-holders and, only subsidiarily, are subject to intervention
of the State. It is evident that such disposition may cause a delegation
of governmental decision making to a non-governmental entity with
65 “Notwithstanding the legal protection provided for in paragraph 1, in the
absence of voluntary measures taken by right-holders, including agreements
between right-holders and other parties concerned, Member States shall take
appropriate measures to ensure that right-holders make available to the
beneficiary of an exception or limitation provided for in national law in
accordance with Article 5(2)(a), (2)(c), (2)(d), (2)(e), (3)(a), (3)(b), or (3)(e) the
means of benefiting from that exception or limitation, to the extent necessary to
benefit from that exception or limitation and where that beneficiary has legal
access to the protected work or subject-matter concerned.” See Council
Directive 2001/29, art. 6(4), 2001 O.J. (L 167) 17-18 (EC).
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37
a consequent privatization of the government's role in protecting
intellectual property.
Only few Member States have implemented effective rules to
protect the interest of consumers of digital content.66 Some countries
such as Greece and Ireland have implemented the Directive into
national law requiring that right holders make available means to
beneficiaries to benefit from the exceptions.67 On the contrary,
Austrian and Dutch law does not set any exception to the anti-
circumvention provisions.
66 For a state of the art as to implementation status at the date of September 22,
2004, see Urs Gasser & Michael Girsberger, Transposing the Copyright
Directive: Legal Protection of Technological Measures in E.U.-Member States.
A Genie Stuck in the Bottle? (Berkman Working Paper No. 2004-10) available
at http://ssrn.com/abstract=628007. For more updated information concerning
this directive see Silke von Lewinski, Rights Management Information and
Technical Protection Measures as Implemented in EC Member States, 35 INT'L
REV. OF INTELL. PROP. & COMPETITION L. 844 (2004); Margreet Groeneboom,
Comparing the EUCD implementation of various Member States, INDICARE,
Mar. 21, 2005 at http://www.indicare.org/tiki-read_article.php?articleId=88;
CONCISE EUROPEAN COPYRIGHT LAW 392, 393 (Thomas Dreier and P. Bernt
Hugenholtz eds. 2006).
67 See Groeneboom, supra note 66.
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38
Concerning private copying exception, Denmark, for instance,
does not mention any provision; UK Copyright Act expressively
refers to "time-shifting" as the only private copying exception.68 In
Italy the Legislative Decree 68/2003, transposing the EC Copyright
Directive, authorizes a copy of a digital protected content for
personal use only if “the user has obtained legal access to the work
and the act neither conflicts with the normal exploitation of the work
nor unreasonably prejudices the legitimate interests of the
rightholder.” 69 These are just some examples and it is quite unclear
68 Id. See also Nora Braun, The Interface Between the Protection of
Technological Measures and the Exercise of Exceptions to Copyright and
Related Rights: Comparing the Situation in the United States and the European
Community, 25 EUR. INTELL. PROP. REV. 496, 501 (2003) (illustrating the
different implementation of Art. 6(4) within the European Community);
CONCISE EUROPEAN COPYRIGHT LAW, supra note 66, at 393.
69 See Decreto Legislativo n. 68/2003, art. 71(4)-sexies, Official Gazette of the
Italian Republic No. 87 of April 14, 2003. “ Fatto salvo quanto disposto dal
comma 3, i titolari dei diritti sono tenuti a consentire che, nonostante
l'applicazione delle misure tecnologiche di cui all'articolo 102-quater, la
persona fisica che abbia acquisito il possesso legittimo di esemplari dell'opera o
del materiale protetto, ovvero vi abbia avuto accesso legittimo, possa effettuare
una copia privata, anche solo analogica, per uso personale, a condizione che
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39
how these rules will be applied in practice. In particular if right
holders do not adopt voluntary measures to allow the use of
exceptions, Member States can adopt different policies that vary
widely from country to country.70 This is one of the reasons why the
Directive purpose for harmonization seems to have failed.
However, the real problem is that, even in case consumers have
some privileges under national law, copyright exceptions can be
replaced with different conditions in accordance with a contract
between users and content providers.
One of the consequences of the use of technological protection
measures is that any rights that consumers may have under copyright
law could be replaced by a commercial agreement between the
parties with a modifying consequence on the balance of rights.71
tale possibilità non sia in contrasto con lo sfruttamento normale dell'opera o
degli altri materiali e non arrechi ingiustificato pregiudizio ai titolari dei
diritti.” For the cited english translation see Groeneboom, supra note 66.
70 See on this point CONCISE EUROPEAN COPYRIGHT LAW, supra note 66 at 392
(commenting the implementation of article 6(4) in the Members States.)
71 See ROSENBLATT ET AL., supra note 1, at 47. See also Consumer’s Guide to
DRM, supra note 53, at 11.
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40
5.2 Must Consumers Accept any Digital Terms and Conditions? In light of the above discussion, it is clear that there is an essential
contradiction: if the technological measures against copying are
legal, and, at the same time, there is a set of consumers’ legitimate
privileges to use content, what kind of solution is possible? The issue
is that users are not allowed to eliminate the legal protection to
validate these privileges. Even when consumers have the exception
to make private copies, technological protection measures can
effectively hinder consumers in exercising this “right”72. The legal
environment seems to support this adverse practice because rights-
holders are not legally obliged to assist a user in exercising his
exception of copying for private use. As a consequence, that “right”
becomes illusory.73 From a U.S. perspective, court decisions are quite
unclear on the point. However it is unambiguous that, at least to my
72 It is not a right in the strict sense of the word.
73 See European Consumers’ Organization, Digital Rights Management,
BEUC/X/025/2004,
http://europa.eu.int/information_society/eeurope/2005/all_about/digital_rights_
man/doc/beuc.pdf [hereinafter DRM-BEUC Position Paper]. See also Severine
Dusollier, Exceptions and Technological Measures in the European Copyright
Directive of 2001 - An Empty Promise 34 INT'L REV. INDUS. PROP. &
COPYRIGHT L. 62, 71 (2003).
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41
knowledge, they have just ruled that there is no “generally
recognized right to make a copy of a protected work, regardless of its
format, for personal noncommercial use”74. Also European and most
national laws do not yet provide a clear answer to the matter.
A possible solution could be to see DRM systems as means to
put into effect a contract between the content provider and the end
user in a very similar way to “shrink-wrap licenses” for computer
software.75 The issue will be to set the limit on infringement, if it
could be identified as a simple contractual infringement concerning
civil law of a private nature, or as a criminal offense. It is necessary
74 See United States v. Elcom Ltd., 203 F. Supp. 2d 1111, 1135. See also
Recording Industry Ass’n of America, Inc. v. Diamond Multimedia Systems,
Inc., 180 F.3d 1072 (9th Cir. 1999) (arguing that the private, noncommercial
recording of copyrighted musical works using digital technology and the
Internet constitutes fair use).
75 See Bechtold, supra note 33, at 342 (arguing that DRM usage contracts are
employed to establish contractual privity between providers and individual
consumers in a mass market protecting content not only by technology, but also
by contract). On the increasing use of licensing, see THE DIGITAL DILEMMA,
supra note 7, at 34 (2000). But see, contra, Margaret Jane Radin, Regulation by
Contract, Regulation by Machine, 160 J. INST. THEORETHICAL ECON. 1, 12
(2004) (stating that DRM is a replacement for contract).
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42
to keep in mind the fact that the problem of intellectual property
exceeds simple private agreements. It is essential to mention
explicitly the contractual obligations of the content user.
Transactions supervised and enforced by technological protection
measures in addition to this type of contract could alter the balance
of rights between rights-holders and consumers.76 In particular, in the
U.S. systems, some types of technologically-enforced rights
transactions supersede the limits of fair use and the first sale
doctrine.77 Nevertheless, DRM, used within a contract, could be used
to protect content that is not subject to intellectual property rights
protection, and could also erect barriers not only at the entrance
level.78 DRM has also the potential to set up an exit barrier because it
76 See Dan L. Burk, DNA Rules: Legal and Conceptual Implications of Biological
"Lock-Out" Systems, 92 CALIF. L. REV. 1553, 1564 (2004) (observing that by
implementing technical constraints on access to and use of digital information,
a copyright owner can effectively supersede the rules of intellectual property
law). See also Niva Elkin-Koren, Copyright Policy and the Limits of Freedom
of Contract, 12 BERKELEY TECH. L.J. 93, 111 (1997).
77 ROSENBLATT et al., supra note 53, at 46. The first sale doctrine is codified at 17
U.S.C. § 107 (1992); 17 U.S.C. § 109(a) (1997).
78 See ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996). In this case the
court upheld a shrinkwrap license agreement that would protect the plaintiff's
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43
does not know when copyright terms expire.79
Returning to the initial question: "Must consumers accept any
digital terms and condition?” my answer is no. Consumer law
stipulates in details the information that must be communicated to
consumers. Also in the framework of digital media and DRM
technologies, consumer must be informed about the rules associated
with the use of the offered digital content. Furthermore some unfair
contractual terms can be legally prohibited if they cause a significant
imbalance in the parties’ rights. In both cases a Court could consider
the conduct of the contracting parties and, if necessary, the contract
CD-ROMs of telephone listings from being posted on the Internet although the
Supreme Court had said that this kind of material could not be protected by
copyright. See Feist Publ’ns, Inc. v. Rural Tel. Servs. Co, 499 U.S. 340 (1991).
On the argument and for examples of contractual terms that conflict with
copyright law, see Mark A. Lemley, Beyond Preemption: The Law and Policy
of Intellectual Property Licensing, 87 CAL. L. REV. 111, 125-26, 132 (1999).
See also Elkin-Koren, supra note 76.
79 DRM systems exercise the same control on works that should exit copyright,
hampering their entry into the public domain and establishing a de facto
unending copyright protection. See John R. Therien, Exorcising the Specter of
a “Pay-Per-Use” Society: Toward Preserving Fair Use and the Public Domain
in the Digital Age, 16 BERKELEY TECH. L.J. 979, 994 (2001).
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44
could be considered not binding for the consumer. However, the
eventual court decision is most of the times, useless, as far as it
comes after several years of litigation, when the product has been for
much time in the market, and even more, superseded by a new and
more updated product.
In the following paragraphs I will analyze the European and
American scenarios considering some legal instruments for the
protection of the weak contractual party in digital media transactions.
6. When DRMs and Contract Terms Jeopardize Consumer Rights: U.S. and EU Approaches
What we see in the contractual structure of DRM is something
similar to a standard form contract, already popular in commercial
and consumer transactions, and particularly diffused in technological
transfers, licensing intellectual property, and service agreements.80 It
is rather unquestionable that DRM systems and technological
protection measures are frequently used to enforce standard contract
terms. I believe that the current consumer protection law can offer
the correct instrument to national authorities to mediate in disputes
80 DRM has been defined as “a souped-up standard form contract.” See Ian Kerr
& Jane Bailey, The Implications of Digital Rights Management for Privacy and
Freedom of Expression, 2 INFO. COMM. & ETHICS IN SOC’Y, 87, 89 (2004).
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45
over unfair consumer contract, in particular when DRM systems are
involved and their use is misrepresented or not disclosed to
consumers.
In the following pages, I take in consideration the European and
the U.S. provisions, confronting the U.S. state law doctrine of
unconscionability, European consumer protection law81 and other
traditional limitations on contractual rights.82
81 The principal consumer protection measures in European Community law are
divided into two main categories referred to generally applicable directives and
directives containing rules regarding specific sectors or selling methods.
Included in the first category are: Council Directive 84/450/EEC on Misleading
Advertising, 1984 O.J. (L 250) 17 amended by the Directive 97/55/EC of the
European Parliament and of the Council on comparative advertising 1997 O.J.
(L 290) 18. Directive 98/6/EC of the European Parliament and of the Council
on consumer protection in the indication of the prices of products offered to
consumers, 1998 O.J. (L 080) 27. Council Directive 93/13/EEC on Unfair
Terms in Consumer Contracts, 1993 O.J. (L 95) 29. Directive 1999/44/EC
European Parliament and Council on the Sale of Consumer Goods and
Associated Guarantees 1999 O.J. (L 171) 12. In the second category are
included: Directive 95/58/EC of the European Parliament and of the Council
amending 79/581/EEC on consumer protection in the indication of prices of
foodstuffs and Directive 88/314/EEC on consumer protection of prices of non-
food products 1995 O.J. (L 299) 11; Council Directive 76/768/EEC on the
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6.1 U.S. Approach Towards Digital Terms and Conditions The American legal system, generally, has allowed the use of
approximation of laws of the Member States relating to cosmetic products 1976
O.J. (L262) 169; Directive 96/74/EC of the European Parliament and of the
Council on textile names 1997 O.J. (L32) 38, amended by Directive 97/37/EC
1997 O.J. (L169) of 74; Council Directive 92/28/EEC on the advertising of
medicinal products for human use 1992 O.J. (L113) 13; Council Directive
90/314/EEC on package travel, package holidays and package tours 1990 O.J.
(L 158) 59; Council Directive 85/577/EEC of 20 December 1985 to protect the
consumer in respect of contracts negotiated away from business premises, 1985
O.J. (L 372) 31; Council Directive 87/102/EEC for the approximation of the
laws, regulations and administrative provisions of the Member States
concerning consumer credit, 1987 O.J. (L 42) 48; Directive 97/7/EC of the
European Parliament and of the Council on the protection of consumers in
respect of distance contracts.1997 O.J. (L 144) 19; Directive 90/384/EC of the
Council on the harmonisation of the laws of the Member States relating to non-
automatic weighing instruments 1990 O.J. (L189) 1; Directive 94/47/EC of the
European Parliament and the Council on the protection of purchasers in respect
of certain aspects of contracts relating to the purchase of the right to use
immovable properties on a time-share basis 1994 O.J. (L 280) 83.
82 See Association of American Publishers, Contractual Licensing, Technological
Measures and Copyright Law, at http://www.publishers.org/home/abouta/copy
/plicens.htm.
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standard form agreements and has enforced their terms.83
Furthermore, information disclosure has been the main focal point of
American consumer protection legislation for most of the twentieth
century.84
Federal and state legislatures have enacted statutes to protect the
consumer against aggressive contracting, unfair practices and his
own ignorance in certain transactions.85 These competences are
shared with the Federal Trade Commission, a law enforcement
agency charged by Congress to protect the public against deceptive
83 For an overview of standard terms in American law, see EDWARD ALLAN
FARNSWORTH, CONTRACTS (4th ed. 2004).
84 See Rubin, supra note 43, at 35; Stephen Bainbridge, Mandatory Disclosure: A
Behavioral Analysis, 68 U. CIN. L. REV. 1023 (2000); Thomas A. Durkin &
Gregory Elliehausen, Disclosure as a Consumer Protection, in THE IMPACT OF
PUBLIC POLICY ON CONSUMER CREDIT 109, 110 (Thomas A. Durkin & Michael
E. Staten, eds., 2002).
85 See Burke, supra note 56. See also Robert L. Oakley, Fairness in Electronic
Contracting: Minimum Standards for Non-Negotiated Contracts, 42 HOUS. L.
REV. 1041, 1061 (2005) (arguing that the United States does not have a general
law governing unfair contract terms with any specificity).
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or unfair practices and anticompetitive behaviour.86 The most
important instrument of the Federal Trade Commission in order to
apply and to enforce the standard of fairness has been its rule making
authority, even if the recent inclination is to prefer administrative
action, seen as more flexible and efficient.87 The rulemaking
procedures, the administrative actions, the injunctions and other
mechanisms to obtain consumer compensation are all potential
effective instruments to protect also digital consumers from unfair or
deceptive practices.
On this matter the “doctrine of unconscionability”88 has the effect
86 See STANLEY MORGANSTERN, LEGAL PROTECTION FOR THE CONSUMER 1 (2nd
ed. 1978); HANS W. MICKLITZ & JÜRGEN KESSLER, MARKETING PRACTICES
REGULATION AND CONSUMER PROTECTION IN THE EC MEMBER STATES AND THE
US 419 (2002); DOUGLAS J. WHALEY, PROBLEMS AND MATERIALS ON
CONSUMER LAW 58 (4th ed. 2006).
87 MICKLITZ & KESSLER, supra note 86, at 424, 433.
88 Codified in UCC § 2-302 (1978). It is found also in general contract law: see
Restatement 2d of Contracts, § 208. For more regarding unconscionability, see
Arthur Allen Leff, Unconscionability and the Code – The Emperor's New
Clause, 115 U. PA. L. REV. 485, 505 (1967) (coining the terms "procedural"
and "substantive" unconscionability); Richard Craswell, Property Rules and
Liability Rules in Unconscionability and Related Doctrines, 60 U. CHI. L. REV.
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of extending the protection of weak contractual parties as far as
possible,89 giving judges the power to determine boundaries of this
remedy.90 This doctrine provides a way for courts to control unfair
1, 51-60 (1993); Richard A. Epstein, Unconscionability: A Critical
Reappraisal, 18 J. LAW & ECON. 293 (1975); Russell Korobkin, Bounded
Rationality, Standard Form Contracts, and Unconscionability, 70 U. CHI. L.
REV. 1203, (2003); Eric A. Posner, Contract Law in the Welfare State: A
Defense of the Unconscionability Doctrine, Usury Laws, and Related
Limitations On The Freedom to Contract, 24 J. LEGAL STUD. 283 (1995); John
A. Spanogle, Analyzing Unconscionability Problems, 117 U. PA. L. REV. 931
(1969); Carol B. Swanson, Unconscionable Quandary: U.C.C. Article 2 and
the Unconscionability Doctrine, 31 N.M. L. REV. 359, 367 (2001).
89 See DAVID W. SLAWSON, BINDING PROMISES: THE LATE 20TH CENTURY
REFORMATION OF CONTRACT LAW 57 (1996) (describing the doctrine's
introduction in the 1960s and subsequent adoption). See also Hillman &
Rachlinski, supra note 56, at 456 (noting that unconscionability doctrine
“affords courts considerable discretion to strike unfair terms directly rather than
covertly by stretching less-applicable rules in order to reach a fair result”).
90 See Cristiana Cicoria, The Protection of the Weak Contractual Party in Italy vs.
United States Doctrine of Unconscionability. A Comparative Analysis, 3
GLOBAL JURIST ADVANCES (2003),
http://www.bepress.com/gj/advances/vol3/iss3/art2. The doctrine of
unconscionability is a doctrine of contract law that makes a contract term
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contracts and contract conditions. It allows a court to prevent the
enforcement of a contract, or specific provisions, if the judge finds
that the contract or any part of the agreement to have been
unconscionable. The problem with unconscionability as a legal
doctrine comes in determining the meaning of the unconscionability.
The U.C.C., in fact, does not define it. Courts have described it as
“an absence of meaningful choice on the part of one of the parties
together with contract terms that are unreasonably favorable to the
other party”.91 However, Courts have demonstrated a reluctance to
find unconscionability in standard commercial transactions92 but, it is
unenforceable when is demonstrated the occurrence of both procedural and
substantive unfairness. See BLACK’S LAW DICTIONARY 1524 (6th ed. 1990).
For the distinction of these two kinds of unconscionability, see Leff, supra note
88, at 487-88.
91 Williams v. Walker-Furniture Co., 350 F.2d 445, 449 (D.C. Cir. 1965).
Unconscionability has been recognized also as the absence of meaningful
choice on the part of one party due to one-sided contract provisions, together
with terms which are so oppressive that no reasonable person would make them
and no fair and honest person would accept them. See Fanning v. Fritz's
Pontiac-Cadillac-Buick. Inc., 322 S.C. 399, 472 S.E.2d 242, 245 (S.C. 1996).
92 See JAMES J. WHITE & ROBERT S. SUMMERS., HANDBOOK OF THE LAW UNDER
THE UNIFORM COMMERCIAL CODE 474 (2d ed. 1980) 474 ("findings of
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51
indubitable that this institution may be able “to enlarge the spectrum
of protection available to the consumer, being an incisive and
effective legal instrument against unequal bargaining, and abuse of
superior contractual position”.93 Nevertheless, in the opinion of the
majority, unconscionability does not seem well standardized to the
goal of mitigating the insidious effects of form contracts and
copyright licensing practices.94Most often the unconscionability is unconscionability should be rare in commercial settings"); see also Sandra J.
Levin, Examining Restraints on Freedom to Contract as an Approach to
Purchaser Dissatisfaction in the Computer Industry, 74 CAL. L. REV. 2101,
2108 (1986) (asserting that "courts have exhibited a reluctance to find
unconscionability in standard commercial transactions"); Lewis A. Kornhauser,
Unconscionability in Standard Forms, 64 CAL. L. REV. 1151, 1153-57 (1976).
93 See Cicoria, supra note 90, at 7.
94 See, for example, Korobkin, supra note 85, at 1208, 1256. See also GUIBAULT,
supra note 39, at 262 (arguing that the assessment of the fairness of a licence
term under the doctrine of unconscionability takes no account of copyright
policy issues and revolves only around matters of contract law and market
inquiry); J.H. Reichman & Jonathan A. Franklin, Privately Legislated
Intellectual Property Rights: Reconciling Freedom of Contract with Public
Good Uses of Information, 147 U. PA. L. REV. 875, 927-929 (1999) (perceiving
its inability to respond to intellectual property rights issues and proposing a
doctrine of “public interest unconscionability”).
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only applied by defendants as a defense to suits and the lack of
litigation could suggest the difficulty in proving unconscionability in
court by individual consumers.95
Contract law also offers guaranties and protection from potentially
unfair clauses in standard form contracts.96 Particularly, in the case of
standardized agreements, the rule of the section 208 of the
Restatement (second) of contracts permits the court to pass directly
on the unconscionability of the contract or clause rather than to avoid
unconscionable results by interpretation.97 Furthermore, the section
95 See Fred H. Miller & John D. Lackey, THE ABCS OF THE UCC: RELATED AND
SUPPLEMENTARY CONSUMER LAW, 109 (2nd ed. 2004) (observing that for this
reason also statutes that permit administrative enforcement are important for
consumer protection).
96 Restatement 2d of Contracts, § 208. See generally John E. Murray, Jr., The
Standardized Agreement Phenomena in the Restatement (Second) of Contracts,
67 CORNELL L. REV. 735, 762-79 (1982); see also Hillman and Rachlinski,
supra note 56, at 454-63 (investigating the three main doctrines American
courts use to review potential abuses in standard-form contracts:
unconscionability, Restatement (second) of contracts, section 211(3) and the
doctrine of reasonable expectations).
97 See Restatement 2d of Contracts, § 208 cmt. a.
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211 of Restatement (Second) of Contracts98 sets out a standard that,
though not frequently applied,99 de facto overlaps with
unconscionability doctrine, but does so in different terms and under
different language.100 The effects of the restatement101 are summarized
98 Id. § 211.
99 Only forty-three published judicial opinions had interpreted Section 211(3) of
the Restatement, twenty-five of those were penned by Arizona courts, and most
of those dealt with insurance coverage disputes. See James J. White, Form
Contracts under Revised Article 2, 75 WASH U. L. Q 315, 324-25 (1997).
100 See Raymond T. Nimmer, Breaking Barriers: The Relation Between Contract
And Intellectual Property Law, 13 BERKELEY TECH. L.J. 827, 874 (1998). The
called doctrine of "reasonable expectations" and its variation described in
Section 211 of the Restatement (Second) of Contracts have been incorporated
into (substantive) unconscionability analysis by most courts. See Korobkin,
supra note 88, at 1257-58.
101 Section 211 reads as follows:
(1) Except as stated in Subsection (3), where a party to an agreement signs or
otherwise manifests assent to a writing and has reason to believe that like
writings are regularly used to embody terms of agreements of the same type, he
adopts the writing as an integrated agreement with respect to the terms included
in the writing.
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as follows: “a person who manifests assent to a standard form is
bound by the terms of that form, except with respect to terms that the
party proposing the form has reason to believe would cause the other
party to reject the writing if it knew that the egregious term were
present”.102
This standard can offer an additional basis for avoiding some
(2) Such a writing is interpreted wherever reasonable as treating alike all those
similarly situated, without regard to their knowledge or understanding of the
standard term of the writing.
(3) Where the other party has reason to believe that the party manifesting such
assent would not do so if he knew that the writing contained a particular term,
the term is not part of the agreement.
The provision is explained in the comments to the section:
Reason to believe [that a term would have been refused had the other party
known of it] may be inferred from the fact that the term is bizarre or
oppressive, from the fact that it eviscerates the non-standard terms explicitly
agreed to, or from the fact the it eliminates the dominant purpose of the
transaction. The inference is reinforced if the adhering party never had an
opportunity to read the term, or if it is illegible or otherwise hidden from view.
This rule is closely related to the policy against unconscionable terms and the
rule of interpretation against the draftsman.
Id. § 211 cmt. f.
102 See Nimmer, supra note 100, at 874.
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terms in standardized agreements, in particular in front of some
unclear and surreptitiously undiscovered contract terms connected
with the use of a technological protection measure.103
Some U.S. courts have ruled that form terms unknown to the
consumer are unenforceable if the consumer is uninformed of even
the existence of terms and this unawareness is reasonable.104 The
doctrinal explanation is that contract terms must be “reasonably
communicated” to be legally binding and that this requisite is not
achieved when the consumer has no reason to know of the presence
of such terms.105 An opening in this direction can be read in the
103 Courts have already applied Restatement section 211(3) to invalidate
standardized contract terms modifying existing law in software transactions.
E.g., Angus Medical Co. v. Digital Equip. Corp., 840 P.2d 1024, 1030 -31
(Ariz. Ct. App. 1992) (holding contract term shortening the statute of
limitations from six years to 18 months unenforceable). Cf. Darner Motor
Sales, Inc. v. Universal Underwriters Ins. Co., 682 P.2d 388 (Ariz. 1984)
(adopting the Restatement). See Mark A. Lemley, Intellectual Property and
Shrinkwrap Licenses, 68 S. CAL. L. REV. 1239 (1995).
104 See Korobkin, supra note 88, at 1268.
105 See Ciro Silvestri v Italia Società Per Azioni Di Navigazione, 388 F2d 11 (2d
Cir 1968) (establishing that terms must be "reasonably communicated" to
purchasers).
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proposed bill, Digital Media Consumers' Rights Act.106 This is a quite
recent U.S. legislative answer to the problem of misrepresentation
and nondisclosure of information related to copy protected digital
media. The Rep. Rick Boucher's proposed bill attempts to restore the
historical balance in copyright law and ensures the proper labeling of
“copy-protected compact discs”. It requires labels on copy-protected
compact discs and attempts to rebalance the legal use of digital
content and scientific research prevented by the Digital Millennium
Copyright Act. In particular, the main aim of the bill is to ensure that
consumers are fully aware of the limitations and restrictions they
may discover when purchasing copy-protected digital media because
manufacturers are not currently obligated to place these kinds of
notices on packaging. Most consumers are not aware of what media
stores and file formats they will be limited to when they make the
initial decision to buy a portable device even if it is probably written
in the End User License Agreement.107 .
106 Digital Media Consumers' Rights Act of 2005, H.R.1201, 109th Cong. (2005)
(available at http://thomas.loc.gov/cgi-bin/query/z?c109:H.R.1201:)
107 See Digital Media Consumers' Rights Act Official summary at
http://www.house.gov/boucher/docs/dmcrahandout.htm; Michael P. Matesky,
The Digital Millennium Copyright Act and Non-Infringing Use: Can
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The overall impression is that the American rules of contract
formation limit rescission of an otherwise valid contract to a very
limited number of cases and with an underreaction.108
Despite these impressions, however, I do agree with who has
observed that the structure of general policing doctrines in the
U.C.C. and the common law of contract – including
unconscionability, reasonable expectations, contract against public
policy – can be used to address additional unfair practice and terms
that have not yet appeared or not yet identified as problematic.109
6.2 European Approach Towards Digital Terms and Conditions The EC framework is based on a set of rules primarily
incorporated in the European Community Council Directive on
Mandatory Labeling of Digital Media Products Keep the Sky from Falling?, 80
CHI.-KENT L. REV. 515, 532 (2005).
108 See Richard Craswell, Taking Information Seriously: Misrepresentation and
Nondisclosure in Contract Law and Elsewhere, 92 VA. L. REV. 565, 576, 579,
590 (2006).
109 See Jean Braucher, New Basics: Twelve Principles for Fair Commerce in
Mass-Market Software and Other Digital Products, in CONSUMER PROTECTION
IN THE AGE OF THE INFORMATION ECONOMY 195 (Jane K. Winn ed., 2006).
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Unfair Terms in Consumer Contracts.110 It is considered one of the
most important consumer contract law directives, formulating a
110 Council Directive 93/13/EEC, On Unfair Terms in Consumer Contracts, 1993
O.J. (L95/29). A fundamental part of the literature on the Council Directive on
Unfair Terms in Consumer Contracts is written by German scholars. A great
number of the provisions in the Directive, in fact, are very similar to the
provisions of the 1976 German Standard Contract Terms Act – (Gesetz Zur
Regelung des Rechts der Allgemeinen Geschaftsbedingunen.). For comments
on the Directive, see e.g. Hans Erich Brandner & Peter Ulmer, The Community
Directive on Unfair Consumer Contracts: Some Critical Remarks on the
Proposal Submitted by the EC Commission, 28 COMMON MKT. L. REV. 647
(1991); Vincenzo Roppo, La Nuova Disciplina delle Clausole Abusive nei
Contratti fra Imprese e Consumatori, 40 RIV. DIR. CIV. 277(1994); Giorgio De
Nova, Criteri Generali di Determinazione dell'Abusività di Clausole ed Elenco
di Clausole Abusive, 48 RIV. TRIM. DIR. E PROC. CIV. 691 (1994); Roberto
Pardolesi, Clausole Abusive (nei Contratti dei Consumatori): Una Direttiva
Abusata?, 119 FORO IT. 137 V (1994); Christian Joerges, The Europeanization
of Private Law as a Rationalization Process and as a Contest of Disciplines –
an Analysis of the Directive on Unfair Terms in Consumer Contracts, 3 EUR.
REV. PRIVATE L. 175 (1995); Bernd Tremml, The EU Directive on Unfair
Terms in Consumer Contracts, 3 INT’L CONT. ADV. 18 (1997); HUGH COLLINS,
REGULATING CONTRACTS, 256 (1999); GERAINT G. HOWELLS & STEPHEN
WEATHERILL, CONSUMER PROTECTION LAW 261 (2nd ed. 2005). See also
Oakley, supra note 85 at 1065.
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European concept of unfairness.111 In addition, further EC legislation,
which does not have consumer protection as its primary purpose,
offers some consumer protection or regulates the power of national
authorities to introduce consumer protection regulations.112 For
example the Electronic Commerce Directive113 covers advertising and
marketing to consumers by information society service providers.
The Television Without Frontiers Directive114 also coordinates certain
aspects of commercial communications through broadcasting means.
Moreover, the Brussels Convention115 and the Rome Convention116
111 See HOWELLS & WILHELMSSON, supra note 52, at 88.
112 See Commission of the European Communities, Green Paper on European
Union Consumer Protection, COM(2001) 531 final.
113 Directive 2000/31/EC of the European Parliament and of the Council on
certain legal aspects of information society services, in particular electronic
commerce, in the internal market (Directive on electronic commerce) 2000 O.J.
(L178) 1.
114 Council Directive 89/552/EEC on the co-ordination of certain provisions laid
down by Law, Regulation or Administrative Action in Member States
concerning the pursuit of television broadcasting activities 1989 O.J. (L298) 23
as amended by Directive 97/36/EC.
115 Council Regulation 44/2001/EC on jurisdiction and the recognition and
enforcement of judgments in civil and commercial matters 2001 O.J. (L12) 1.
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establish rules, in cases of a cross-border contractual dispute within
the EC, to determine which Member State Court should hear the case
and which Member State’s law will apply to the contract.117
Within the E.C. the general information duties and information
duties specifically addressed to consumer are considered an
116 Convention on the Law Applicable to Contractual Obligations 80/934/EEC
[Rome Convention] 1980 O.J. (L266) 1. In Europe, the Rome Convention is
the principal instrument by which consumer applicable law issues are
determined.
117 The general rule, set out in Article 3.1 of the Rome Convention, stipulates that:
“A contract shall be governed by the law chosen by the parties. The choice
must be expressed or demonstrated with reasonable certainty…”. At the same
time, Article 5 of the Convention provides for an exception for contracts
involving consumers and for which the subject "is the supply of [tangible]
goods or services". For contracts involving consumers, in fact, the law
preferred by the parties should not adversely affect the mandatory provisions of
the State in which the consumer is habitually resident. The application of this
rule is questionable in the case of intellectual property licensing agreements. In
fact, the convention fails to deal expressly with issues of jurisdiction and choice
of law for copyright infringement cases. See Raquel Xalabarder, Copyright:
choice of law and jurisdiction in the digital age, 8 ANN. SURV. INT’L & COMP.
L. 79, 80 (2002).
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important part of the consumer protection policy. Information is
regarded as the basis for the consumers’ freedom of choice.118
Concerning the Unfair Term Directive, it invalidates standardized
terms that are unfair and result in a significant imbalance of
obligations between the parties to the detriment of the consumer.119
Specifically, a term is considered unfair if, contrary to the
requirement of good faith, it causes a significant imbalance in the
parties’ rights and obligations under the contract, to the detriment of
consumers.120 The Directive also contains a non-exclusive grey list of
unfair terms.121 It sets only a minimum baseline, while every EC
Member State has national consumer legislation that protects
consumers who adhere to standardized conditions. The Commission
118 See Lena Oslen, The Information Duty in Connection with Consumer Sales
over the Net, in CONSUMER LAW IN THE INFORMATION SOCIETY 147 (Thomas
Wilhelmsson et al. ed., 2001).
119 The Directive applies only to consumer transactions, i.e. those involving an
individual who acquires products for her own personal consumption and not for
business or professional use. See HOWELLS & WILHELMSSON, supra note 52, at
88-95.
120 Council Directive 93/13/EEC, art. 3(1).
121 Council Directive 93/13/EEC, art. 3(3).
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has stated that “general contractual terms and conditions aim to
replace the legal solutions drawn up by the legislator and at the same
time to replace the legal rules in force in the Community by
unilaterally designed solutions with a view to maximizing the
particular interests of one of the parties.”122 This Directive offers
some level of protection only to consumer defined in the Regulations
as “any natural person who, in contracts covered by these
Regulations, is acting for purposes which are outside his trade,
business or profession”.123 A term included in a standard form
contract could be presumed unfair if it produces a “significant
imbalance in the parties’ rights and obligations arising under the
contract to the detriment of the consumer”.124 Comparing the
regulation of unfair contract terms and the concept related to the
unconscionability doctrine under U.S. contract law, we can consider
that the European regulation defines a much lower limit for
122 Report from the Commission On the Implementation of Council Directive
93/13/EEC of 5 April 1993 on Unfair Terms in Consumer Contracts, at 13
(Apr. 27, 2000), available at http://europa.eu.int/comm/consumers/cons_int/saf
e_shop/unf_cont_terms/uct03_en.pdf.
123 Council Directive 93/13/EEC, art. 2(b).
124 See Guibault, supra note 39, at 254.
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intervention by courts.125
Also the Distance Contract Directive126 and the Electronic
Commerce Directive127 could be applied to products and services
offered through on-line contracting and that may include a DRM
system.128 Both Directives include transparency provisions that oblige
the provider to comply with the requirements relating to the such
information about the main characteristics of the goods or services,
125 See Jane K. Winn and Brian H. Bix, Diverging Perspectives on Electronic
Contracting in the U.S. and the EU, 54 CLEV. ST. L. REV. 175, 186 (2006)
(finding a much lower threshold for intervention by courts also with reference
to federal and state regulation of unfair and deceptive trade practices).
126 Council Directive 97/7/EC, On the Protection of Consumers in Respect of
Distance Contracts, 1997 O.J. (L 144).
127 Council Directive 2000/31/EC, On Certain Legal Aspects of Information
Society Services, in Particular Electronic Commerce, in the Internal Market
2000 O.J. (L 178).
128 See Lucie Guibault & Natali Helberger, Consumer protection and Copyright
Law, 10-14 available at
http://www.ivir.nl/publications/other/copyrightlawconsumerprotection.pdf (last
visited Jan. 11, 2006); see generally Natali Helberger, Digital Rights
Management from a Consumer’s Perspective, 8 IRIS plus (2005), available at
http://www.obs.coe.int/oea_publ/iris/iris_plus/iplus8_2005.pdf.en.
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the prices, the right of withdrawal, the contract terms and the general
conditions. In particular the Distance Contract Directive grants
consumers the right to withdraw from certain contracts with a
supplier when the contract formation takes place without physical
presence of contractual parties.129
In this type of contract, the consumer must receive written
confirmation or confirmation in another durable medium, such as
electronic mail, at the time of performance of the contract. Supplier
is obliged to inform consumer in writing about: arrangements for
exercising the right of withdrawal; place to which the consumer may
address complaints; information relating to after-sales service;
conditions under which the contract may be rescinded.130 The
Electronic Commerce Directive introduces legal certainty by
requiring the exchange of certain information in connection with the
129 Council Directive 97/7/EC, art. 6.1.
130 To comply with this regulation, some European music stores have already
granted customers the right to return downloaded digital music within seven
days. See Urs Gasser, iTunes: How Copyright, Contract, and Technology
Shape the Business of Digital Media – A Case Study 21 (Berkman Ctr. for
Internet & Soc’y at Harvard Law School Research Publ’n No. 7, 2004),
http://ssrn.com/abstract=556802.
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conclusion of such contracts, in particular it requires on-line
suppliers to inform consumers about the name, geographic and
electronic address of the provider of the service,131 a clear and
unambiguous indication of the price,132 indication on any relevant
codes of conduct and information on how those codes can be
consulted electronically133 and, finally, the contract terms and general
conditions provided to the recipient available in a way that allows
him to store and reproduce them. Although these Directives do not
expressly deal with copyright licenses, scholars suggest the
possibility to extend these regulations to goods and services offered
through click-wrap licenses over the Internet.134
Recently, the EC consumer protection regulatory framework has
been enriched with a new directive on Unfair Commercial
Practices135 concerning unfair business-to-consumer commercial
131 Council Directive 2000/31/EC, art. 5.1.
132 Id. at art. 5.2.
133 Id. at art. 10.2.
134 See Guibault, supra note 39, at 302-304; Gasser, supra note 130, at 21-22.
135 Directive 2005/29/EC of the European Parliament and of the Council on Unfair
Commercial Practices, 2005 O.J. (L149) 22. For first comments see HUGH
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practices in the internal market. This new Directive concerns
business-to-consumer transactions whereby the consumer is
influenced by an unfair commercial practice which affects decisions
on purchasing or not a product, on the freedom of choice in the event
of purchase and on decisions about exercising a contractual right. By
harmonizing the legislation in this field, it provides a general
criterion for determining if a commercial practice is unfair, in order
to establish a limited range of unfair practices prohibited throughout
the Community. In particular, the principle used to determine
whether a practice is unfair, is the “materially distortion of the
economic behaviour of consumers”.136 This criterion refers to the use
of a commercial practice that appreciably impairs the consumer’s
ability to make an informed decision, thereby causing the consumer
to take a transactional decision that he would not have taken
otherwise.137 There is no doubt that the Directive could constitute a
new starting point in setting some protection standards regarding
COLLINS, THE FORTHCOMING EC DIRECTIVE ON UNFAIR COMMERCIAL
PRACTICES (2004).
136 Directive 2005/29/EC, art. 2(e).
137 Id.
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digital media transactions in the European electronic marketplace.138
It has been observed that the failure “to inform consumers about the
application on a digital support of an anti-copy device, which
prevents them from making any copy for time- or place shifting
purposes, could amount to a misleading practice that would be
prohibited”139 under this Directive.
7. Interoperability & Standards as an Indirect Form of Consumer Protection
Another different approach in the regulatory framework for
consumer protection in digital media world has been proposed by
Professor Jane Winn in a recent academic work.140 She asserts that,
“because technological standards constitute a form of regulation that
shapes markets and market behavior”, regulators and policy makers
might also be able “to protect consumer interests in on-line markets
by focusing on the content of the technical standards that define the
138 See generally CRISTINA COTEANU, CYBER CONSUMER LAW AND UNFAIR
TRADING PRACTICE (2005).
139 Guibault & Helberger, supra note 128, at 15.
140 See Jane K. Winn, Is Consumer Protection an Anachronism in the 21st
Century? (2006) available at
http://www.law.washington.edu/Faculty/Winn/Documents/Winn_Consumer_A
nachronism_Intro.pdf.
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architecture of on-line markets”.141 Standards have for long been
recognized as the natural means to enable the emergence of
networked systems and platforms. It would be desirable that these
discussions be complemented with concrete proposals on how global
market can benefit from new paradigms of innovation and merge this
with adequate intellectual property rights policy. Technical standards
are, in fact, considered one of the foundations of the modern
consumer movement, as well as one of the most interesting and
innovative forms of consumer protection.142 Governments should
141 Id.
142 See Jane K. Winn, Information Technology Standards as a Form of Consumer
Protection Law, in CONSUMER PROTECTION IN THE AGE OF THE INFORMATION
ECONOMY 99 (Jane K. Winn ed., 2006) available at
http://www.law.washington.edu/Faculty/Winn/Publications/Info_Tech_Stds.pd
f (illustrating three case studies that demonstrate the cost and benefits of
government intervention in the development and adoption of information
technology standards as a competitive strategy for protecting consumer
interests). For a broader discussion see also Geraint G. Howells, Consumer
Safety and Standardization -- Protection Through Representation?, in LAW
AND DIFFUSE INTERESTS IN THE EUROPEAN LEGAL ORDER: LIBER AMICORUM
NORBERT REICH 755 (Hans-W. Micklitz et al. eds., 1997); JESSIE VEE COLES,
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intervene in the development of information technology standards
because they could be an effective vehicle to protect consumer
interests.
Standardized data formats and interoperability offer advantages for
technology consumers as well as for the companies that develop
them143. Accordingly, some economists argue that:
Consumers generally welcome standards: they are spared having
to pick a winner and face the risk of being stranded. They can enjoy the greatest network externalities in a single network or in networks that seamlessly interconnect. They can mix and match components to suit their tastes. And they are far less likely to become locked into a single vendor, unless a strong leader retains control over the technology or wrests control in the future through proprietary extensions or intellectual property rights. 144
It has been demonstrated that content industry has been able to
reach agreements on the adoption of technological protection
measures for special format. The case of DVD is the most evident
example.
STANDARDIZATION OF CONSUMERS' GOODS; AN AID TO CONSUMER-BUYING
(1932).
143 See Carl Shapiro & Hal R. Varian, The Art of Standards Wars, 41 CAL. MGMT.
REV. 8, 14 (1999).
144 See CARL SHAPIRO & HAL R. VARIAN, INFORMATION RULES: A STRATEGIC
GUIDE TO THE NETWORK ECONOMY 233 (1999).
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On this front, it has been observed that the EC “seems to have
missed an opportunity to use information technology standards to
enhance compliance with its very broad data protection laws” while
“the U.S. appears to be moving in the direction of using management
standards to strengthen the enforcement of some of its much
narrower information privacy laws.”145 The EC Copyright Directive
avoids, in fact, the requirement of any particular standard yet
encourages the compatibility and interoperability of different
systems.146 However, even if from a consumer perspective the goal
could be the development and diffusion of a global standard, the
content industry is worried that a standardized management system
could be more vulnerable to piracy.
If we accept all these patterns as a starting point for a reasonable
solution of the conflict between the two opposing rights, we can
probably find a way to reduce intellectual property disputes over
digital content, different from the difficult legislative options.
145 See Winn, supra note 142.
146 See Marie-Thérèse Huppertz, The Point of View of Software Industry, in THE
FUTURE OF INTELLECTUAL PROPERTY IN THE GLOBAL MARKET OF THE
INFORMATION SOCIETY: WHO IS GOING TO SHAPE THE IPR SYSTEM IN THE NEW
MILLENNIUM? 70 (Frank Gotzen ed., 2003).
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Therefore, we have to decide if we want all content rights
transactions to fall under contract instead of copyright law, and, if so,
we have to find remedies to protect the consumer’s rights.
“Consumer contracts governing the use of digital material,” need to
be “fair and transparent.”147 and, probably, the application of
consumer protection law could immediately offer an effective
solution to reduce imbalance between parties. To ensure consumers
to continue engaging in fair uses, it is necessary to circumvent
technological restriction when legitimate purposes require it.
Consumers must acquire and keep these legal mechanisms in order to
avoid abuses.
8. Final Remarks This article examined DRM systems, their ability to manage
copyright, the intersection of copyright with contract, the limitation
of legitimate user rights, what to do about this problem and
additionally providing a discussion of both consumer law in Europe
and the U.S.
In a framework where contract law is replacing intellectual
property law, I have looked the difficulties and the possible solutions
147 DRM-BEUC Position Paper, supra note 73, at 3.
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of maintaining a balance between the inherently contradictory
interests of intellectual property rights-holders and the general
public. In particular, I have explored the ways in which consumer
protection law can safeguard consumer’s use of DRM protected
digital content. On this point the European Union law148 includes
special rules for specific types of contracts while the U.S. legal
system seems to link consumer protection to market mechanism
treating the problem in a more general way.149
Perhaps the most clearly defined result which has emerged from
this investigation is that the law currently governing transaction in
digital content was not, for the most part, designed specifically for
this purpose. 150 Reform is needed, and it is needed now.
With regard to possible positive actions at European level, it could
be necessary to take advantage of the forthcoming review of the
148 Consumer protection has also received a significant place in the Community’s
constitution. See Treaty establishing a Constitution for Europe, Article III-235,
2004 O.J. (C 310) 1, 105.
149 See Winn & Bix, supra note 125, at 190. Sometimes, it might be right after all.
Markets could be much efficient and fast than government institutions at
tailoring well-balanced solutions.
150 See Braucher, supra note 109, at 176.
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European regulatory framework for consumer protection and the
recast of the intellectual property acquis. As correctly observed by
consumers’ organizations, the review must be “not merely
retrospective but also prospective in assessing how the acquis can
adapt to changes in the market place”.151 In particular, it is
indispensable to evaluate how the acquis, “and more fundamental
consumer rights underlying the acquis, can be applied effectively”
also in the digital environment152 stipulating new rules for the
implementation of the digital consumer protection.153 As it was
proposed by the Bureau Européen des Unions de Consommateurs, it
is indispensable to include a provision on DRM technologies in the
unfair contract directive. The implementation of this proposal would
allow the consumer protection authorities to intervene against unfair
151 See BEUC Memorandum, supra note 37, at 8.
152 Id.
153 See Natali Helberger, Digital Rights Management from a Consumer’s
Perspective, 8 IRIS plus (2005), available at
http://www.obs.coe.int/oea_publ/iris/iris_plus/iplus8_2005.pdf.en (arguing the
necessity of sector-specific rules designed to take into account specific
characteristics of the subject-matter).
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consumer contract terms if the terms are “code-based” rather than
“contract-based”.154
For resolving the problem of a safe distribution and use of
electronic works we can lay down two different paths.
The first scenario assumed that the status quo will be maintained.
In this case policy makers will have to reexamine and adjust the
regulatory and enforcement copyright policies so as to correct the
actual imbalance. In particular they will have to decide if consumer
protection could be better safeguarded inside or outside copyright
law.
The second, and more unrealistic, scenario involves the best
alterative for a consumer, which is a situation where content
providers decide to abolish DRM technologies. But, an open
environment, free from DRM limitations seems much more a
provocation rather than as a serious argument.155
154 See Cornelia Kutterer, Protection of Consumers against Unfair Practices in e-
Commerce, intervention to the Conference: The European Legal Framework
for e-Business and Innovation (27-28 Nov. 2006, Brussels) available at
http://docshare.beuc.org/Common/GetFile.asp?PortalSource=2530&DocID=91
14&mfd=off&pdoc=1
155 See Jobs, supra note 50.
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This is the reason why, as long as circumstances remain the same,
I believe that consumer protection law could effectively contribute,
even if only partially, to provide information disclosure, protection
and transparency in relation to transaction done by means of
electronic instruments and involving DRM technologies.156 The duty
to correctly inform consumers about DRMs can contribute to re-
establish consumer confidence in digital media, recalibrating the
balance of intellectual property rights in digital content transactions.
Consumer, in fact, must benefit from technological innovations
without abusive restrictions; in particular technology should not be
surreptitiously used to erode established consumer rights.
Consumer protection law may not be the panacea for the
management of digital rights, but could contribute - awaiting for new
rules - to pave the way for a fairer play in the markets, maintaining
alive consumer rights also in the digital environment.
156 Cf. Helberger, supra note 153 (asserting that neither copyright law nor general
consumer protection law currently offers a common, comprehensive protection
standard for users of electronically protected content.
